3. Heart of the Plan

The previous chapter suggests building a plan like an artichoke, with its heart in the center and the rest of the plan wrapping up and around it. It also suggests starting anywhere you like, which is a bit of a contradiction, or perhaps just another paradox. You can start anywhere you like, but build your plan around the heart, which implies that the heart comes first. And usually it does.

The heart of the plan, which is also the heart of the business, is made up of a group of three core concepts that can't be separated: market, identity, and focus. Don't pull them apart. It's the interrelationship between them that drives your business.

So let's look at what I call the heart of the plan-as-you-go business plan, the core strategy, which is this enmeshed combination of the business identity, the target market element, and the strategic focus. I'm going to go through each of these in more detail in the rest of this section, but let's first establish that they are completely interrelated, and that you never separate any one of them from the other two.

You can't do everything. In restaurants, you can't credibly offer great food at bargain prices with great atmosphere. If you say you do, nobody believes you anyhow. So you have to focus. Make this focus intertwined and enmeshed with your choice of key target customer and your own business identity. All three concepts have to work together.

These three things are the heart of your business. Don't pull them apart. Don't take them one at a time. Don't ever stop thinking about them. Remember, in planning as well as in all of business, things change. Keep watching for change in assumptions, in the environment, in your own team, or any changes that might affect your core or heart of the plan.

Although these three concepts are inseparable, we have to start somewhere, so let's look first at your business identity. This is what makes your business different from all others. What you want, what you do well, how you do things, what makes you unique.

What you want to do with your core strategy is establish that identity for yourself, your team, and out there in the market, for your customers.

Validating the idea and understanding the business model are pretty important steps that should come before writing a business plan. That's hardly a novel idea.

Still, novel idea or not, successful entrepreneur Vivek Wadhwa spells out the early stages very well in a BusinessWeek special report published in early 2008, "Before You Write a Business Plan."

He starts with a short list for validating the idea:

Write down your thoughts on the product you want to build and the needs you want to solve. You'll be detailing your hypotheses.

Validate these hypotheses with as many potential customers as you can. Ask them if they will buy your product or service if you build it. Learn about what features they need and what they will pay for, ask them for more ideas, and be sure that there is a large enough market.

Build a prototype of your product or offer a test run of your service and again ask potential customers what they think about it. You'll find that customers usually provide much better input when they can actually try out a product.

Then Wadhwa also suggests a slightly longer list for developing the business model, by answering s a series of questions:

How are you going to find customers or have them find you? Are you going to advertise, cold-call or rely on word of mouth?

How will you differentiate your product or service? There is always competition, so how are you going to set yourself apart?

What can you charge for your product or service that's profitable for you and provides value to the customer?

How are you going to persuade potential customers to buy from you? Even great products or services don't sell themselves; you have to develop a process for closing deals (BusinessWeek, 7/12/05).

How will you deliver your products or services to your customers? Are you going to have a direct sales force, sell through distributors or over the Internet? Can you do this cost-effectively?

How are you going to support your customers if your product breaks? Are you going to provide a telephone hotline, on-site support or answer e-mails?

How are you going to ensure customer satisfaction and turn customers into loyal fans? Your success will ultimately depend on how happy your customers are.

You have to understand what you do and who you are if you are going to be able to set your business apart from its competition. The exercise is something like looking at a mirror. Gather your team together, if you have a team ready, because this makes for a good discussion. Ask some of these questions:

What do we like to do? How are we different? What is there about us that sets us apart? What excites us? What are we good at?

What do we do that other people (or companies) want to have done? What do we like to do that people want to pay for? What do we like to do that we do better or differently from others who do it?

What value can we add? What’s missing? How can we do something better than what’s now available? What can we see about the future that others can’t see?

Where can we give value that isn’t there right now?

Presumably, in whatever business you have or whatever business you're starting, you do something you want to do and believe in. Your team members have to want to do it and believe in it too. That restaurant that is somebody's lifetime dream, or skiing equipment, or a newsletter … success isn’t based on the idea, it is based on how hard you've worked at it, how much value you deliver.

In the Art of the Start, Guy Kawasaki offers a list of ways to generate new business ideas. Kawasaki talks about getting going, about ideas being generated by impulses like “I want one” and “I can do this better” or “My employer wouldn’t (or couldn’t) do this.” There too, it doesn’t come out of the blue, it starts with you.

In Growing a Business, Paul Hawken shows how a business grows naturally out of the owners and founders doing something they want to do, filling a need they believe should be filled. I recommend reading that book also.

To be fair, there are exceptions. Franchise businesses, for example, when they work, are a business formula you pay for and implement, while being guided and taken by the hand every step of the way. Being a McDonald’s franchisee means you’re a millionaire; it doesn’t mean you like eating or preparing what McDonald’s restaurants serve. You buy a business to run. The franchisor tells you how to run it. If it isn’t a set formula and if the franchisor doesn’t give you all you need to know, then it’s a bad deal.

To determine your core competencies, take another look at the mirror. Take a step away from the business, and get a new fresh look at it. What things do you do best? Let's consider a few companies most people know: We might reasonably think a core competency of Apple Computer is design, a core competency of Nordstrom is customer service, and a core competency of Volvo is vehicle safety. The picture here illustrates this idea: you have to recognize what you're good at. It can't be everything. You aren't credible if you try to do everything right.

You do have to understand your core competence as you develop your core strategy. Don't pretend you can be the best at service and have the lowest prices and the highest quality products; that isn't credible and it will just get in the way. Be honest with yourself or with your team.

Don't think that core competency depend on the industry, or that they are the same for all players in any given industry. Look at the difference between economy cars, reliability cars, safety cars, and performance cars, for example. Or consider the different possibilities for a management consultant, whose core competencies might be any of these:

Facilitation of discussions and brainstorming for the management team

Cost cutting and firing

Finding new growth opportunities in contiguous markets

Finding people with money who can finance new ventures from the consultant's clients

Developing documents that are easy to read and cover the bases well

And then consider the variations on food services and restaurants. To name just a few:

Quick, fast, drive-through

Excellent cuisine

Ambiance; good place for a date

Sports bar

Healthy fast foods

So this is not a difficult concept to understand. It usually leads to good discussion and a better sense of core strategy.

People seem to like getting into the mission statement, but I'm not sure it's always such a good idea. There's also the possibility of doing your mantra instead, and people talk about a vision statement, and of course there are also business objectives.

The underlying idea is sound. Let's think about who we are, what we want, what we want to do for customers, employees, and so forth. Let's use these words to define ourselves.

Before I go on, let's distinguish between these different items:

A mission statement should define what the business wants to do for at least three sets of people: customers, employees, and owners. It should not be just meaningless hype.

A mantra is a single phrase that defines a business. Guy Kawasaki, author of The Art of the Start, recommends mantra instead of mission.

A vision statement projects forward into time three or five years and presents a picture, like a dream, of how things should be. Usually a vision statement works best as a story about the future, with your business as the key element in the story. Where it is, what it is doing, how big it is, what's special about it. This works for some businesses, but not all.

Business objectives should be hard-baked, concrete, specific, and, above all, measurable. Objectives are like sales growth rates, employee head counts, customers in the database, percentages of gross margin or profitability, units sold, and so on.

Your mission statement is both opportunity and threat at the same time. It's an opportunity to define your business at the most basic level. It should tell your company story and ideals in less than 30 seconds: who your company is, what you do, what you stand for, and why you do it. It's a threat, however, because it can be a complete waste of time.

A mission statement is a complete waste of time when it's just meaningless phrases, hype that nobody can remember and wouldn't matter even if they could remember.

Most mission statements are essentially full of interchangeable, nice-sounding phrases like "excellence" and "leadership" that make all of them sound exactly the same. If you have a mission statement in your company, test it by asking yourself, honestly, whether your competitors could use exactly the same statement. Does it distinguish you from all other businesses? If you gave an employee or customer a blind screening test, asking her to read your mission statement and four others without identifying which is which, would she be able to tell which mission statement was yours?

Consider the new trend, the idea of the Mantra. Guy Kawasaki writes an eloquent argument for the mantra instead of the mission in his book The Art of the Start (see sidebar, Mantras vs. Missions). At the very least, think about it.

Before you do the mission statement, make sure you're going to use it. Will it actually set the underlying goals of the company? Will you refer to it as you develop and implement strategy? Will your team members know it, believe it, and use it in practice?

Then, start to ask yourself the most important questions. Do you want to make a profit, or is it enough to just make a living? What markets are you serving, and what benefits do you offer them? Do you solve a problem for your customers? What kind of internal work environment do you want for your employees? All of these issues may be addressed in a mission statement.

Basic guidelines in writing a mission statement

Your mission statement is about you, your company, and your ideals. Read other companies' mission statements, but write a statement that is about you and not some other company. Make sure you actually believe in what you're writing; your customers and your employees will soon spot a lie. I suggest addressing three key components:

What are you doing for your customers? Let's hope this is something that sets you apart, that makes you different, and that your customers will recognize.

What are you doing for your employees? Fair compensation, good tools, professional development, encouragement, or whatever. If you're serious about it, put it in the mission statement. If it's in the mission statement, get serious about it.

What does the company do for its owners? Don't apologize for needing profits to stay in business, or for generating return on investment for those who invested. Say it as part of your mission statement.

A few more tips:

Don't "box" yourself in.Your mission statement should be able to withstand the changes that come up over time in your product or service offerings, or customer base. A cardboard box company isn't in the business of making cardboard boxes; it's in the business of providing protection for items that need to be stored or shipped. The broader understanding helps them see the big picture.

Keep it short. The best mission statements tend to be three to four sentences long.

Ask for input. Run your mission statement draft by your employees. Is it clear and easily understood, or does it sound like something from a Dilbert comic strip?

Aim for substance, not superlatives. Avoid saying how great you are, what great quality and what great service you provide.

The fundamental shortcoming of most mission statements is that everyone expects them to be highfalutin and all-encompassing. The result is a long, boring, commonplace, and pointless joke.

In The Mission Statement Book, Jeffrey Abrams provides 301 examples of mission statements that demonstrate that companies are all writing the same mediocre stuff. To wit, this is a partial list of the frequency with which mission statements in Abrams's sample contained the same words:

best - 94

communities - 97

customers - 211

excellence - 77

leader - 106

quality - 169

Fortune (or Forbes, in my case) favors the bold, so I'll give you some advice that will make life easy for you: Postpone writing your mission statement. You can come up with it later when you're successful and have lots of time and money to waste. (If you're not successful, it won't matter that you didn't develop one.)

We focus too much attention on mission statements. Too often they distract us from the real business of bearing down on why and how we're different, particularly when taken from the customers' point of view. The mission tends to be meaningless fluffy words.

Here's a good test: take your mission statement and ask yourself, honestly, if your competitions' mission statements couldn't be exactly the same? Could one of your own team members guess which company is yours if they read five mission statements including yours plus those of four competitors. Most companies' missions are full of promises about excellence and customer experience and leading-edge technology and such. They don't mean very much. Words like "excellence," for example, mean nothing. Define excellence. How would you even know?

However, you should also create a mantra for your organization. A mantra is three or four words long. Tops. Its purpose is to help employees truly understand why the organization exists.

If I were the CEO of Wendy's, I would establish a corporate mantra of "healthy fast food." End of story. Here are more examples of corporate mantras to inspire you:

Federal Express: "Peace of mind"

Nike: "Authentic athletic performance"

Target: "Democratize design"

Mary Kay "Enriching women's lives"

The ultimate test for a mantra (or mission statement) is if your telephone operators (Trixie and Biff) can tell you what it is. If they can, then you're onto something meaningful and memorable. If they can't, then, well, it sucks.

So why bother? Good question. Maybe the mantra is enough, as Guy suggests. But some companies use their mission statements well, they do become part of the background of day-to-day work and long-term strategy development. For those cases, if you're really going to use a mission statement, then I say you should also remember at three points a good mission statement should cover.

What are you doing for your customers? Let's hope this is something that sets you apart, makes you different, and that your customers will recognize.

What are you doing for your employees? Fair compensation, good tools, professional development, encouragement, or whatever. If you're serious about it, put it in the mission statement. If it's in the mission statement, get serious about it.

What does the company do for its owners? Don't apologize for needing profits to stay in business, or for generating return on investment for those who invested. Say it as part of your mission statement.

If at this point you're still looking at developing a mission statement, then I recommend reftk.

Like the artist squinting to view the landscape better, or differently, as you build your sense of business identity, try to focus on keys to success. Keep it to just two or three key priorities that make the difference.

Some of this will depend on your industry, but there's a lot more to it than that. For food services, for example, you might think good food would be an obvious one, but what about a good location, easy drive-through, good parking, or even a proper match between price and reputation. Or marketing? Or the personality of the maitre d'?

In a retail business, for example, the classic joke is that the keys to success are location, location, and location. In truth, that might be, location, convenient parking, and low prices. It's different depending on your real identity, who you are as a business, and what your strategy is. A computer store's keys to success might be knowledgeable salespeople, major brands, and newspaper advertising.

This idea is related to core competence, but it isn't exactly the same thing. You hope you have core competencies that match your keys to success, but making that happen is a matter of working over time to build the business.

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. I particularly like the SWOT analysis because it's easy to understand and very quickly gets a team involved in strategic thinking.

Notice that there's a big difference between the first two and last two components. Strengths and weaknesses are internal. They are part of your company identity. You can change them over time, but not easily; you have to work on it. Opportunities and threats are external. They are out there in the market, happening, whether you like it or not. You can't change them.

Especially when you're growing an existing business, you want the planning process to pull your team together, to develop commitment and accountability. Managers have to believe in a plan to implement it. They also have to believe that results will be tracked and that managers will be held accountable for disappointing results and will be given credit for positive results. Healthy planning process depends on everybody believing that results will make a difference. As an owner or operator of an existing business, recognize this team factor as a vital part of your planning process. Work on bringing the team into the planning at several levels.

At least once a year, go through a strategy review process that begins with a SWOT meeting and SWOT review. Get your key people together and develop bullet points. Keep notes. Keep the discussion open.

Digest the results of the SWOT. Consider the responsibility you have as owner or manager of a business, which involves some delicate balancing. On one hand, your plan should include your managers by reflecting their input. On the other, real business strategy can't be done by committee or by popular vote. Sometimes a leader has to make hard and even unpopular decisions. So you should digest those SWOT results in a way that combines ownership responsibility with participation and teamwork. Optimize the SWOT. Sometimes that means that as you summarize the points made, you allow your summary to reflect and direct the discussion towards the strategy that you want to develop. This can be a difficult paradox to manage.

Share the digested, optimized SWOT with your team of key managers. Develop the strategy. Keep in mind that strategy is focus, and remember the principles of long-term consistency, displacement, and priorities.

Give the team time to develop detailed strategy, tactics, and programs. You can use the strategy pyramid framework, for example, to develop tactics to implement each of your strategy priorities and programs to implement those tactics. Keep everybody involved focused on strategic objectives.

Merge the team's contributions into a plan. Remember again that strategy isn't done by committee or popular vote. Somebody has to have the last word, and that somebody ought to be the owner of the business.

Schedule regular implementation and plan review meetings -- assign them dates and importance from the beginning -- at the same time that you approve the plan. Make this schedule very specific, with real dates and times, so that every manager knows ahead of time; for example, meet on the third Thursday of every month. Review plan vs. actual results. Talk about why actual results are different from what was planned -- and they always will be -- and what should be done about it.

Make sure that those review meetings happen. They have to be important. If you're the owner, operator, or manager, make sure you attend and manage those meetings. If the review meetings fall apart, so will the plan.

During my 20+ years as a business plan consultant and 10+ more years running a company, I've seen many times how the SWOT is an icebreaker. It invites people to contribute. It gets people thinking strategically, talking, sharing, and it turns a group of people into a team.

The SWOT also offers a good forum for opening up discussion. I've seen a SWOT discussion bring up problems that needed upper-management attention but might otherwise have remained hidden. Middle managers don't always like telling upper managers what's wrong. Even in a healthy company culture, that can be awkward. SWOT makes that easier.

For example, I once saw a 30-year-old software development manager suggest during a SWOT meeting that one company weakness was that the 50-year-old president kept messing with the software code instead of leaving it to the full-time pros. I saw another SWOT meeting in which several managers said ownership was unwilling to hold managers accountable for underperforming.

It's not magic. It's just an easy-to-understand framework that invites anybody who cares about a business to contribute.

Of course you have to manage a SWOT meeting well. Like any other meeting subject, SWOT can degenerate into useless discussion. A SWOT meeting should focus on the SWOT agenda and avoid unrelated side discussions. It should invite contributions without reprisals for negative comments. It's a variation on brainstorming, so contributions -- as in suggested bullet points, suggested items on the list -- are all positive as long as they are well intentioned.

If you accept all comments, good and bad, you also get the benefit of bringing people into the discussion. Implementation is much more likely when managers contribute to the plan. They understand the background and they feel like the plan reflects their input. So use the SWOT both ways — use it to catalyze team commitment and to develop strategy.

Telling your market story isn't about doing formal market research, or gathering the supporting information you'll need to include in a plan for investors, or professors, or in some cases for the bank, your boss, partners, or any other third-party plan judge or reader. No. This is about knowing your market for yourself, so that you understand the decisions you make, understand the strategy, understand the heart of your plan.

You might get it from some kinds of market research, but in most cases we're talking about understanding the market. Understand what people want, or need, and why they buy from you. Understand what they think about when they think about your business.

For example, let's say you're in the restaurant business. Position yourself. Is your restaurant about fine food and fine dining? White tablecloths and wait people dressed up in black and white, a vase of flowers on each table? Or is it about driving through with half a kids soccer team in the van, getting a bunch of hamburgers and drinks and french fries fast?

What needs are you solving? Why do people buy from you?

Now imagine you're a business plan consultant. Can you do detailed market research for high-budget situations, like major companies looking for information about entering new markets? Or are you aiming at the people next door trying to start a business? Do you want buyers who expect to pay tens of thousands of dollars, and can you give them what they expect to get? Or are you aiming at those people who are borderline between having somebody do it and doing it themselves, who would pay $500 to get a plan done, but not $1,000? These are huge differences.

Now pretend you're a blog. How and why will people find your blog, and what will make them return?

Imagine a conversation between your favorite customer and a friend or acquaintance, about your business. What do they say? "It's pricey, but the food is fabulous so it's worth it," or "It's a price performer. Not bad if you're in the neighborhood"?

One of the sadder elements of this exercise is the many businesses who really don't know how their market sees them. The bed-and-breakfast places who are getting customers because the hotels are full, whose customers wish the organizer woman would leave them alone. The bed-and-breakfast who is aiming for quaint and historic and full of character and is getting business because of location and low price. How sad when people change their formula without even realizing what, in their customers' minds, their formula was.

One of the best exercises is thinking through who isn't in your market. Who aren't you trying to reach? How does ruling that person out help you understand who you are looking for?

For example, Starbucks has to know that it isn't trying to get the drive-through customer in a hurry. The Sushi restaurant has to know that a minivan carrying one parent and six 12-year-old kids in soccer uniforms isn't its market. The personal shopper has to know she isn't looking for cost-conscious bargain basement buyers.

I mean that you should tell a story, literally. Make the story about a single person, either a customer or consumer of your business or a decision maker in a company that's part of the target market. Talk about who this person is. Give the customer a gender, an age, a family situation, and a problem to solve or a need or a want. Make it rich in detail. For example:

John Jones doesn't particularly care about clothes but he knows he has to look good. He sees clients every day in the office, and he lives in a ritzy suburb, where he often sees clients by accident on weekends. But he hates to shop for clothes. (The Trunk Club)

Jane Smith wants to do her own business plan. She knows her business and what she wants to do, but wants help organizing the plan and getting the right pieces together. The plan needs to look professional because she's promised to show it to her bank as part of the merchant account process. (Business Plan Pro)

Paul and Milena live in a beautiful apartment in Manhattan, with their two kids. Paul has a great job in Soho, Milena works from home, and neither has time for food shopping. (Just Fresh)

Acme Consulting has five people managing several shared e-mail addresses: info@acme.com, sales@acme.com, and admin@acme.com. The five of them have trouble not stepping on each other. Sometimes a single e-mail gets answered three or four times, with different answers. Sometimes an e-mail goes unanswered for days, because everybody thinks somebody else answered it. (EmailCenter Pro)

Notice that in each of these examples I could be much more general. The Trunk Club targets mainly men who don't like to shop but need to dress well, and have enough money to pay for the service. Business Plan Pro is for the do-it-yourselfer who wants good business planning. EmailCenter Pro is for companies managing shared e-mail addresses like sales@ or info@. But instead of generally describing a market, I've made it personal.

Sometimes you can get away with generalizing. "Farmers in the Willamette Valley," for example, or "parents of gifted children." It's an easy way to slide into describing a market. However, I suspect that you're almost always better off starting with a more readily imaginable single person and let that person stand for your target market.

John Jantsch, in Duct Tape Marketing, recommends that you start by profiling your ideal customer. Focus for a while on one person, whether he or she is your customer directly or the decision-maker for a business customer. Give that person age, gender, income level, likes, dislikes, favorite movies, songs, magazines, restaurants. Know that person.

If you've been in business, you can think of that customer fairly easily. Maybe it's a composite of several real customers.

What you want at this point is to be able to tell a story about this customer and his or her needs and wants and how your business addresses them.

Clean your mind for a few minutes. Forget how great what you're selling is. Forget the features you've focused on, and your marketing literature. Think about what your customer wants. Why does he or she buy from you.

Think about Starbucks for a minute; a brand most people know. Starbucks doesn't think it's selling coffee drinks. Starbucks sells affordable luxury. Starbucks sells atmosphere, a place to meet.

Then consider the two different options for selling food. One of them is selling convenience, reliability, consistency; it's a great solution for a parent driving a van full of kids in soccer uniforms, kids that the parent needs to feed between games. The other is selling luxury, atmosphere, fine food and peace and quiet, a fancy meal for a date -- in short, something completely different from the first "product."

Now go back to your target customer, and think about that story. Who is this, what situation is she in, why does she pay you money. What are you really selling? What business are you really in?

Back in the 1970s when I was a foreign correspondent living in Mexico City, I dealt frequently with an American diplomat who provided information about Mexico's increasing oil exports, which were a big story back then. We had lunch about once a month. He became a friend.

Then one day he told me he was being transferred to another post because he had been in Mexico too long. "What? but you've only been here for three years," I said. I was disappointed for two reasons -- losing a friend, and losing a source of information. "You've barely learned the good restaurants!"

He explained to me that the U.S. Foreign Service moved people about every three years on purpose. "Otherwise we think we know everything and we stop questioning assumptions," he said. "That's dangerous."

I remember that day still because I've seen the same phenomenon so many times in the years since, in business. Business owners and operators are so obviously likely to fall into the same trap. Our business landscape is constantly changing, no matter what business we're in, but we keep forgetting the fresh look. "We tried that and it didn't work" is a terrible answer to a suggestion when a few years have gone by since it was first mentioned. What didn't work in 2000 might be just what your business needs right now. But you think you don't have to try again what didn't work a few years ago.

This is why I advocate the "fresh look" at the market at least once a year. Existing businesses that want to grow too often skip the part of business planning that requires looking closely at their market, why people buy, who competes against them, what else they might do, what their customers think about them. Think of the artist squinting to get a better view of the landscape. Step back from the business and take a new look. Use standard market research techniques and content and just apply it to your business, not a new opportunity.

Talking to customers -- well, listening to customers, actually -- is particularly important. Don't ever assume you know what your customers think about your company. Things change. If you don't poll your customers regularly, do it at least once a year as part of the fresh look. As an owner, you should listen to at least a few of your customers at least once a year. It's a good exercise.

For creativity's sake, think about revising your market segmentation, creating a new segmentation. If, for example, you've divided by size of business, divide by region or type of business or type of decision process. If you've always used demographics, use psychographics.

Remember to stress benefits. Review what benefits your customers receive when they buy with you, and follow those benefits into a new view of your market.

Question all your assumptions. What has always been true may not be true anymore. That's what I call the fresh look.

The artist takes a fresh look at the scene every time paints it. How many times has this man seen the banks of the Seine? It doesn't matter, because he sees it differently each time. You need to take a fresh look at your market and your strategic situation at least once a year.

You fall in love with your plan, and love is blind. You don't see the fatal flaw.

I know a man who jumped headfirst into a new venture based on building a chain of used CD stores. The punch line? It was 2000. Napster was already there. Do you see the fatal flaw? He didn't. And this was a man who'd had a string of successes.

Love is blind.

So here's a trick that might, sometimes, if you're lucky, help you see the fatal flaw.

It takes imagination. So close your eyes, relax your shoulders, and take a deep breath and let it out slowly.

Jump in your imagination to the future. Go to three years from now.

Now pretend that, there in the future, you know that the business you are starting now, your baby, your dream, is over. It failed. I know, that's hard, but it's a game; it's only in your imagination, so make that leap.

You're sitting at a table, maybe in a coffee shop, maybe at lunch, and somebody asks you: "What happened? Why did it fail?"

Now, using your imagination, your intelligence, and what you know about your business, answer that question. This is fiction now, so you have to tell a story. Make it believable. What happened?

This activity will help you think about flaws. Was it competition? Did the management lose interest? Was there not enough money? Did some new technology come along?

I don't know for sure, but I believe that if my friend with the used CD stores had done this exercise, he would have come up with the possibility of a change in the way we deal with music, meaning Napster, downloading, iTunes and so on.

And, for the record, I haven't done the research, either, but what do you think? Would you like to own a used CD store? What do you think has happened to the sale of used CDs?

Some people make a big deal about business strategy. The Amazon.com search for books about business strategy is daunting. People do doctoral theses on it, and then they charge huge fees to help huge companies figure out strategy.

But this is the real world. Your business. And when you pull it back down out of the ivory tower, the good strategies are usually pretty obvious. Some would say boring.

Your strategy pulls in both identity and market.

On the identity side of things, you want to focus on strengths, and away from weaknesses. You want to take advantage of your core competencies.

On the market side of things, you want to focus on a well-defined target market so you can tailor your message and your business offering. You don't want to be just a restaurant; you want to be a restaurant with a focus that fits a target market, with price, food, and ambience to match. You don't want to be just a market research and planning consultant; you want to be a market research and planning consultant with a focus on personal computer markets in Latin America.

As I've said elsewhere, your focus is intimately related to your identity and your market. You cannot pull these enmeshed concepts apart.

Displacement:In the real world of small business, everything you do is something else you can't do.

Understanding displacement is vital for business planning, vital for growing a business, vital for small- and medium-business in particular. Consider the picture here, marbles dropping into a full glass of water. The water comes splashing out of the glass and onto the table. That's a good illustration of displacement and how it works in business.

I've seen it so many times: trying to plan their business, people start making lists of things that ought to be done and end up with huge unrealistic and impossible business plans because they haven't come to terms with displacement.

Learn to live with the reality of displacement and you'll do better planning your business, and, particularly, growing your business.

In 30 years of working with businesses of all sizes, I've come across several of what I would call general principles of strategy. These don't necessarily apply in the academic world, or for larger corporate enterprises, but they do apply to small and medium businesses everywhere:

Strategy is focus. The more priorities in a plan, the less chance of successful implementation.

Strategy needs to be consistently applied over a long term to work. Better to have a mediocre long-term strategy consistently applied for years than a series of brilliant but contradictory strategies that never last long enough to matter.

Strategy needs to be tailored. There are no standard strategies. Every company is different. A given strategy must always be tailored for a specific company.

Strategy needs to be realistic. You have to deal with your company as it is at this point in time, understanding what choices you really have, what knobs you can actually turn.

The best strategies are market driven. When possible, it's not "how to sell what we have," but rather, "how to make what people want or need what we offer."

Good strategies understand displacement. Displacement in business refers to the undeniable fact that everything you try to do rules out many other things that you therefore can't do. You have to choose carefully, because one project displaces many others.

A good way to keep your planning realistic is to know what knobs you have to turn.

For example, say you're working a tractor trying to dig out a boulder in the middle of your yard or field. What knobs (for controls) do you have to turn?

You have controls to move the tractor forward, move it backward, and turn it.

You have controls to go faster, or slower.

You have controls to deal with the tractor equipment, like the blade and the digger.

And those knobs are your universe of solutions. So you deal with your problem given the controls you have. It doesn't do you any good to think about what you'd like to do if you don't have a control that can do that.

This is an important concept to keep in mind in business. You might want a lot of things for your business, but if you don't have the resources to get there, if you don't have the right people, or the know-how, or the working capital, then you have to plan on getting the resources first.

Strategy has to be realistic. Know what knobs you have to turn. Keep it real.

Forget finding a strategy for a certain type of business or following somebody else's strategy. It won't work. Strategy has to be unique, tailored to your business. You have your own identity, including strengths, weaknesses, goals, core competencies. You have to develop your strategy, for your company.

This should be obvious, but some people still try to find the strategy for a restaurant, or a management consultant, or whatever.

Nobody talked much about business models until suddenly a lot of businesses, valued for a lot of money, didn't have them.

For almost any traditional business, the business model is so obvious that you don't have to talk about it. Stores sell goods. Restaurants sell meals. Hotels sell lodging. Airlines and taxis sell transportation.

Think of the business model as how you make money -- how you get money out of your customer's pocket and into your bank account.

The new businesses, mainly Web businesses, need to explain how they make money. Some of the most highly valued businesses in the world -- Facebook, for example -- don't have an obvious way to make money.

Some businesses still get away with generating traffic, so-called eyeballs, but not money. The underlying assumption in these cases is that the traffic means a likelihood of being able to generate money somehow, some day.

And if you want to be really trendy, use the phrase business model to mean type of business. This can get really interesting. Take a look at Alexander Osterwald'sBusiness Model Alchemist, for example, a blog focusing on new ways to do business. Here's how he defines the business model:

A business model is a conceptual tool that contains a set of elements and their relationships and allows expressing the business logic of a specific firm.It is a description of the value a company offers to one or several segments of customers and of the architecture of the firm and its network of partners for creating, marketing, and delivering this value and relationship capital, to generate profitable and sustainable revenue streams.

Along with that he adds nine points:

The value proposition of what is offered to the market;

The target customer segments addressed by the value proposition;

The communication and distribution channels to reach customers and offer the value proposition;

The relationships established with customers;

The core capabilities needed to make the business model possible;

The configuration of activities to implement the business model;

The partners and their motivations of coming together to make a business model happen;

The revenue streams generated by the business model constituting the revenue model;

The cost structure resulting of the business model.

This is perhaps a bit thick in language, but still, a nice summary of a business. You could use this as the heart of a plan too, no? His value proposition is our business offering, his target customer segment is obvious, but our strategy adds more attention to your business identity and your narrowed strategic focus. This is descriptive. Regardless, it's a good list.

I want you to use words and numbers written down somewhere to keep track of your plan, but that doesn't mean it isn't there unless you have it written into a text. It is there if you know it and if your team knows it.

Don't get freaked out by the text, or the writing. It's just for you, and probably your team members, to track your progress. Just type snippets. Stream of consciousness is fine. Pictures, photos, or charts are fine, too. Some of my favorite plans use illustrations or pictures to represent the key concepts for the heart of the plan; they can be as simple as a single slide.

You might be writing bullet points. Whether short text or picture or completely written out discussions, you want to keep track of your plan so you can track or your plan so you can review and revise it and, of course, communicate between different people. But until you need to present it as a document to be read by others, don't make extra work. Keep it simple.

I do recommend keeping it on a computer, making it accessible to the few key team members who must be able to refer to it, but do only what you need.

Don't ever get caught worrying about the actual writing. Just type snippets. Steam of consciousness is fine. Pictures or photos or charts are fine.

It is paradoxical. If you stay focused on the key elements of your business, you aren't looking at new opportunities. That's one of the reasons that strategy is done by humans, and not by recipes or algorithms. It takes a human to deal with the paradox and complexity.

Business strategy often involves tough decisions. Do you focus on what you know well, and consolidate, build on your core competencies? What if the market changes or technology changes and leaves you behind? But if you constantly move into new areas, constantly pursue new opportunities, you run into the problems of displacement and long-term consistency.

Deal with it. That's why you are in charge. You make the tough decisions.